Summary:

• Australian Q2 GDP increased 0.8% q/q, less then expected
• AUDUSD still locked into short term consolidation
• Chinese equities decline amid weak moods in Asia
• Ugly wage data from Japan does not bode well for the yen

This was not the strongest session in Asia as fears crept, from North Korea to hurricane Irma and the data was somewhat modest as well. In Australia, the Q2 GDP increased 0.8% q/q and 1.8% y/y, a decent but lower than expected growth as inventories and net exports withdrew from growth. Household spending added to growth again and investments were positive as well – encouraging signs for the RBA but overall it’s far from stunning when you compare it – say – to Canada where Q2 growth was at nearly 4.5% y/y. 

Australian Q2 growth missed expectations but at least the structure was decent. Source: Macrobond, XTB Research 

Australian dollar enjoyed a rally yesterday as the US dollar struggled and the AUDUSD remains in upper part of a short-term consolidation. The pair broke 0.7775 support at earlier stage and it is now a long term support with an additional short term one around 0.7870. It says a lot that AU bulls were able to neglect somewhat cautious RBA yesterday and weaker GDP today and the pair remains close to this year highs at 0.8050. Another wave of USD weakness could pave the way for an extended rally.

AUDUSD remains close to 0.8050 resistance that separates the pair from a stronger rally. Source: xStation5 

However, moods have been contained today in Asia. Be it Korea, hurricane Irma (the most direct effect so far is on the Cotton market where crop is in danger) or lack of otherwise positive news, Asian markets have been unanimously in the red with the Chinese stocks in Hong Kong especially hit (close to -1%), The Hang Seng China Enterprises Index (CHNComp on xStation platform) has been in a profit taking mode this week after reversing from the 11500 resistance but do notice that it remains well in the upward channel so for now the trend seems to be unaffected. 

We have seen profit taking in China but a longer term trend has not been affected. Source: xStation5 

Finally, data from Japan on labour earnings are worth a notice. Earnings declined 0.3% y/y in July following a rise of 0.4% in June (correction from -0.4%). The consensus was +0.5% y/y so this is a major disappointment and it shows that government’s quest for higher wage growth has not succeed. Under these circumstance it’s hard to see how the BoJ could change it’s ultra aggressive policy anytime soon. That means that when global fears abate, the yen could be under pressure again.